Ever since the financial crisis, consumer confidence has labored to regain strength, and spending has been correspondingly subpar. So it’s not surprising that retailers have been extremely reluctant to make big capital outlays. But now there are signs that consumers are loosening their purse strings and, as they do, momentum is building among retailers to renew capital spending on certain projects. For some, today’s low rates make this an ideal time to secure financing; however, some struggling retailers may need creative financing solutions to access the capital they need.
According to the latest results from the GE Capital U.S. Mid-Market CFO Survey, a bi-annual survey of 500 middle-market CFOs, 39% of retail CFOs surveyed expect to increase capital expenditures in the next 12 months. This is more than any other industry in the survey and almost double the number from the beginning of the year. The survey of finance chiefs also found that retail is the most likely to see increased financing needs in the next 12 months. That bodes well for the overall economy considering that middle market retail finance respondents have, on average, revenues of $150 million and 1,235 employees.
Without question, challenges persist for many retailers. In fact, middle-market retail CFOs in the GE Capital survey were the least positive of all industries about both the global economy and their own industry. A hefty 33% expect profits to decline over the next 12 months, an increase of 17 points from the previous survey. Another area of stress for some retailers is the availability of credit: 12% are having trouble lining up credit. That’s not a huge number, but it’s up substantially from 8% earlier in the year.
Given this muddled picture, why are investment expectations spiking so significantly — from 20% to 39% in a six-month period? It’s always difficult to pin down universal causes in an industry as diverse as retail, but there are some themes that seem to be, at least anecdotally, driving investment spending. For instance, after years of deferred capital outlays, many retailers can simply no longer delay certain projects — such as refreshing stores that have grown worn and out of date. Further delays risk turning off customers in a fierce competitive environment.